Industrial Espionage

Case Studies

Two former vice presidents of DoubleClick, an online advertising agency, attempted to establish a competing firm using secrets from DoubleClick including their revenue, pricing, and customer information. A retired Kodak employee established a consulting business and began recruiting his former colleagues to gather proprietary information about the 401 Machine, a device that makes the chemical compound, acetate, which is used for making photographic film. The retired employee sold these valuable confidential documents to Kodak's foreign rivals for thousands of dollars. In some instances, companies hire former employees of their competitors to obtain to trade secrets. Bayer's Agfa group charged General Electric with improperly hiring a key official familiar with the company's new Picture Archiving and Communications Systems (PACs). Agfa alleged that after they declined to enter a joint venture with GE to work on the PACs project, GE aggressively pursued and hired Vishal Wanchoo, the vice president in charge of Agfa's PACs. Agfa charged that Wanchoo helped GE develop its electronic medical imaging business at the expense of Agfa's resources.

In a similar case, General Motors (GM) filed industrial espionage charges against Volkswagen after the company hired a top GM executive. Beyond hiring important former employees, nearly every major U.S. company has developed competitive intelligence teams to gather trade-secret information from competitors. These teams attend conferences and seminars as well as go to airport terminals in order to target competitor's salespeople and executives who can unknowingly reveal potentially damaging information about their companies. Other tactics of these intelligence units include targeting disgruntled employees to learn confidential information, reviewing criminal and regulatory filings, and engaging in “dumpster dives” to obtain discarded old documents of potential value.

The increased occurrence, cost, and threat of industrial espionage effectively lead to the passage of the Economic Espionage Act of 1996 (EEA) which made the theft of trade secrets a federal offense. Under the EEA, trade secrets are broadly defined to include “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.” The EEA also stipulates that the owners must take “reasonable measures” to keep confidential information a secret. If owners fail to safeguard proprietary information, no one can be rightfully accused of stealing it. Finally, the Act requires that the trade secrets must have some form of actual or potential economic value.

...